Big banks feel threat of loans by regionals

Sunday

May 4, 2014 at 12:01 AMMay 4, 2014 at 4:49 PM

Regional banks including US Bancorp and PNC Financial Services Group Inc. are making more business loans at rates that are starting to alarm bigger U.S. banks such as JPMorgan Chase & Co., executives said.

Regional banks including US Bancorp and PNC Financial Services Group Inc. are making more business loans at rates that are starting to alarm bigger U.S. banks such as JPMorgan Chase & Co., executives said.

The market does not appear overheated yet, and many banks are still reluctant to lend to smaller companies with little credit history, analysts say. But there are early signs of banks loosening the terms at which they lend, by demanding less interest, and in some cases making longer-term loans and bigger loans than they did last year or the year before.

In 2013, Chad Jensen, the chief financial officer at the Cellular Connection, a Verizon Wireless retailer with about $700 million in annual revenue from almost 900 stores in 28 states, was looking for a loan and a line of credit to finance potential acquisitions and capital expenditures.

He met with big banks including JPMorgan Chase, Bank of America Corp. and Wells Fargo & Co., but he chose PNC late last year because it offered a 30 percent lower rate and understood his business better, he said. Although the

Marion, Ind.-based company closed the deal with PNC late last year, bankers are still banging on his door, Jensen said.

“I’ve gotten a significant influx of calls from all the regional players,” Jensen said.

The competition to land new business loans reflects the pressure that banks are under to boost profits in a low-interest-rate environment that weighs on their returns.

Business loans are attractive to lenders because they are performing so well. Loss rates on commercial and industrial loans have fallen to 0.3 percent across the banking system, near their lowest level since the Federal Deposit Insurance Corp. started keeping public data on the issue in 1984 and down from a post-crisis high of 2.72 percent in the fourth quarter of 2009.

Executives at the biggest banks think pricing and other terms are getting too generous on at least some of these loans.

“We are seeing the ongoing aggressive competitive environment on both credit terms and pricing, and we’ll do every rational and sensible deal we can do, but we’re not going to chase growth at the expense of discipline,” JPMorgan Chase finance chief Marianne Lake said on an April 11 conference call when asked about commercial-loan growth.

“We will continue to compete on price, and we may be one of those culprits for why it is more competitive on the margin,” US Bancorp chief executive Richard Davis said on an April 16 conference call with analysts, adding that the bank is able to do so because its funding costs are lower than rivals’.

Those trends were clear in first-quarter results. Wells Fargo and Bank of America increased their total commercial portfolios by 1.1 percent and 0.1 percent, respectively, while JPMorgan Chase saw its total commercial and corporate loans decline 0.4 percent.

In contrast, regional banks such as US Bancorp, PNC and Cleveland-based KeyCorp increased the size of their total commercial-loan portfolios by more than 3 percent compared with the fourth quarter of 2013.

Spokeswomen for US Bancorp, PNC and KeyCorp declined to comment.

Federal Reserve data show that total commercial and industrial loans outstanding reached a record $1.69 trillion in the week that ended on April 16, on a seasonally adjusted basis. The annualized growth rate spiked to 12.4 percent in the first quarter from 7.2 percent in the fourth quarter of 2013, well above the roughly 9 percent average since the financial crisis.

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